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What is a Sparplan? What is Mr A really doing with his Sparplan?

Sparplan (I am so tempted to add a meme on this is SPARtaa..) is the way out of automatically managing your investments each month. It is an equivalent of a SIP (Systematic Investment Plan) if you are an Indian investor.

….when I login to my bank account, I notice two options, geldsparplan and wertpapiersparplan. What is the difference?

I use comdirect, and they have these two options, the main difference is:

  • geldsparplan – This savings plan simply takes money from your account and deposits into a Tagesgeld account which earns a whopping 0.01% interest (as of this morning) p.a. In other words, not worth it.
  • wertpapiersparplan – This savings plan is the one we need, we can setup a monthly investment amount and usually declare ETFs or even stocks to invest in each month.

….how much do I invest in a Sparplan? How much does Mr A invest each month?

As of this morning, I am investing 1098 EUR into my sparplan each month. This is mostly focused on diversified ETFs and 1 tiny piece of Amazon stock. I will write more about this in Portfolio page soon.

Let my number not scare you, I started really slow. I was investing less than 300 EUR/month an year ago and less than 200 EUR/month 18 months ago (2018).

As I have mentioned before and might do so again, we have to start with small steps and get comfortable. It took me a while to get comfortable with the idea of investing, and I started really slowly. I had never invested in Germany and had been programmed to be more cautious.

Can’t guarantee the numbers, but you catch the drift!

You can start with even 25 EURs/month, then and grow from there.

….what do I invest in? What are the pitfalls?

Picking your investments is a massive undertaking, but has been extensively covered in reddit.com/r/finanzen or on frugalisten.de forums.

The key pitfalls are, all investments carry risk, transaction costs charged by your depot account per transaction and TER (annual expenses) must be considered very carefully. I am personally a big fan of Index funds, which are lower in costs and deliver average returns.

….but can I not simply buy ETFs each month on the go and not bother with a sparplan?

Yes, of course you can, or you can automate it and forget about it. This is the whole premise of the famous book, The Automatic Millionaire. If you really look at it, it just makes sense, one automated step which simplifies your steps to your Financial Independence.

It makes it easier for me to plan it and worry about one less then thing to do each month.

Update: 22 June 2020

How do you open your Sparplan?

Comdirect:

Schritt für Schritt Anleitung für die Einrichtung eines ETF ...
If you have an account, get to the Wertpapiersparplan
  • Find your preferred ETFs on justETF and find its WKIN number.
  • Login to Comdirect> Geldanlage> Wertpapiersparplan
  • Click on Sparplan Einrichten
  • Enter your amount, minimum being 25 EUR. In the next screen you pick the funds.
  • Search for the WKIN which you had picked, add multiple funds if you nede.
  • Note the amount and the provision fees, i.e. 1.5% of the money invested goes into the fees.
  • In the next screen pick the frequency (monthly/once in 2 months/4 times a year), the date to buy and length of the plan.
  • Furnish your confirmation TAN and you are ready.

Quick questions on Tax and Residency

  • What is Capital gains taxes in Germany? The tax rate is 25% plus 5.5% solidarity surcharge, this should be paid at source. Some depots like Degiro do not offer this at source, and you need to take care of it in your returns.
  • Any tax exemptions on Capital gains? Capital gains of upto 801EUR are tax free, so for a family, this can be 1602 EUR.
  • Any special exemptions on Long term capital gains? Sadly, none.
  • Can I open a Depot account as a Work permit holder or PR holder? Yes, this is absolutely fine as you are tax resident of Germany.

If you have more questions on sparplan, then write into the comments section.